Dow Jones futures were little changed in extended trading, as were S&P 500 futures and Nasdaq futures. The stock market rallied on Wednesday after the Federal Reserve hit 5.1% as a new target for the top interest rate and Fed chief Jerome Powell demanded “substantially more evidence” that inflation is under control.




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But stocks pared losses as investors also weighed in on other comments from Powell and hopes for slower rate hikes starting in 2023. Tesla ( TSLA ) CEO Elon Musk revealed late Wednesday that he sold more than $3.5 billion worth of TSLA stock this week as the stock fell to a new bear market low. Apple: ( AAPL ) dipped below its 50-day moving average.

But solar stocks were strong as the Invesco Solar ETF ( TAN ) offered a buying opportunity because Enphase Energy: (ENPH), SolarEdge Technologies (SEDG), First Solar (FSLR) and: Mass technologies (ARRY) all went up.

Fed rate hike, maximum interest rate

The central bank raised the fed funds rate by 50 basis points to 4.25%-4.5% on Wednesday afternoon, as expected. But policymakers, in new quarterly projections, also now see a peak interest rate of 5.1%, up from 4.6% at the September Fed meeting. Fed chief Powell has said in recent weeks that the peak interest rate is likely to go higher. But 5.1% was above market expectations, especially after Tuesday’s relatively soft inflation report.

Fed chief Powell Hawkish, dovish

Powell, speaking shortly after the Fed meeting announcement and forecast, said the full impact of the Fed’s rate hikes this year had not yet been felt, “but we have more to do.” The Fed chief noted a “welcome reduction” in price growth in the last two CPI reports, but said policymakers “need substantially more evidence. to have confidence that inflation is on a steady downward path.”

Powell did not rule out a further rate cut, to just a quarter point in February. But where the fed funds rate rises and how long it stays high is more important, he stressed. Notably, Powell sees no rate cut in 2023.

But he also said that “our politics are in a pretty good place right now.”

Markets are pricing in a quarter-point Fed rate hike of 74% to a range of 4.5%-4.75%, up from 60% on Tuesday. Notably, investors expect another quarter-point hike in late March, but now see a decent chance of no move at all.

The Fed continues to see growth slowing in 2023, not a real recession.

The major indexes, all of which rose modestly ahead of the Fed meeting announcement and Powell’s speech, turned lower in choppy trading. For the second straight session, the S&P 500 rose above its 200-day moving average but closed below that key level.

Investors should be cautious about increasing exposure to the current market when indices are volatile and close to key levels.

Dow Jones futures today

Dow Jones futures edged higher against the real. S&P 500 futures fell, and Nasdaq 100 futures fell 0.1%.

Crude oil futures fell by 1%.

Chinese retail sales fell 5.9% in November from a year earlier, much worse than expected and worsening from October’s 0.5% decline. Industrial production rose 2.2%, with growth slowing much more than forecast from October’s 5%.

China’s Covid lockdowns have seriously damaged the economy. Covid rules have been loosening rapidly over the past few weeks, but now China is bracing for a massive wave of infections.

Keep in mind that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular stock market session.


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Stock market rally

The stock market rallied heading into the Fed’s meeting announcement, then turned lower with choppy action for the remainder of the session.

The Dow Jones Industrial Average fell 0.4% on Wednesday. The S&P 500 index fell by 0.6%. The Nasdaq composite lost 0.8%. The small-cap Russell 2000 was down 0.7%.

Shares of Apple fell 1.55% to 143.21, below its 50-day moving average.

Crude oil prices in the USA increased by 2.5%, reaching 77.28 dollars per barrel.

The 10-year Treasury yield closed at 3.5%.

Among the top ETFs, the Innovator IBD 50 ETF ( FFTY ) fell 0.4%, while the Innovator IBD Breakout Opportunities ETF ( BOUT ) fell 0.1%. The iShares Expanded Tech-Software Sector ETF ( IGV ) lost 0.2%. The VanEck Vectors Semiconductor ETF ( SMH ) fell 1.7%.

Reflecting more speculative historical stocks, the ARK Innovation ETF ( ARKK ) gave up 1% and the ARK Genomics ETF ( ARKG ) gave up 0.7%. Tesla stock is a large holding in Ark Invest’s ETFs.

The SPDR S&P Metals & Mining ETF ( XME ) retreated 0.9%. The SPDR S&P Homebuilders ETF ( XHB ) fell 0.5%. The Energy Select SPDR ETF (XLE) fell 0.6%, and the Financial Select SPDR ETF (XLF) lost 1.25%. The Select Healthcare Sector SPDR Fund ( XLV ) rose 0.2%.

Solar shares

The Invesco Solar ETF rose 1.8% to 82.61 on Wednesday. The TAN ETF has a buy point at the 84.28 cup handle, but investors could get in early from the 21-day moving average.

Right now, solar stocks are generally going up together, so TAN is a good way to get around the sector with less individual stock risk.

Enphase Energy, First Solar and SEDG stocks are the three largest components, accounting for nearly a third of TAN’s weight.

According to MarketSmith analysis, ENPH shares are now up slightly from their own cup-handled buy point. The SEDG stock is also extended from its handle entry. FSLR shares bounce off its 10-week line, offering a fresh buying opportunity.

Array Technologies is also a TAN component. ARRY shares jumped 8.3% to 23.55, just below the 23.60 cup handle buy point. But the stock is 12.7% above the 21-day line and 26% above the 50-day, making ARRY shares riskier to buy, especially in the current market.


Tesla vs. BYD. Which EV Giant is the better buy?


Tesla Stock:

TSLA shares fell 2.6% to 156.80 on Wednesday. Shares are now down 12.4% on the week, continuing to set two-year lows. Tesla shares peaked at 414.46 in November 2021.

Elon Musk disclosed late Wednesday that he sold nearly 22 million Tesla shares for more than $3.5 billion in the three days ended Dec. 14. Musk has sold more than $39 billion in Tesla stock since the stock peaked in November 2021.

Trading volume has been particularly heavy this week, with Tuesday’s trading the heaviest in 13 months.

On Wednesday, Goldman Sachs cut its price target on TSLA stock and lowered Tesla’s supply forecast for the fourth quarter. Morgan Stanley sees Tesla stock as a top pick for 2023, but warned that “brakes are screeching on electric demand.”

If you were covering the TSLA indicator and just looking at the chart, you would just go ahead.


Five Best Chinese Stocks to Watch Now


Market rally analysis

The past two days are a great example that it’s not the news, it’s the market’s reaction to the news.

A cooler-than-expected CPI inflation report sent stocks flying at the open on Tuesday, but they quickly pared gains.

On Wednesday afternoon, the Fed raised its peak interest rate forecast more than expected. Fed chief Powell made it clear that inflation needs to come down a lot more, though he also signaled more. The major indices sold off in heavy volume but then pared losses, briefly turning positive before fading again.

The S&P 500, which was above its 200-day line for a second session, failed to close above that key level, this time turning lower. But it did find support at the 21-day line, which closes the 200-day gap.

The Dow Jones and Nasdaq also successfully tested their 21-day lines. The Russell 2000, which has become a lagging index, fell back to its 50-day line.

Despite the disappointment since Tuesday’s opening highs, the major indexes are up about 1.6% for the week, while the Russell 2000 is 1% higher.

The stock market often has a second-day reaction to Fed meetings, especially with such a large flow.


Time the market with IBD’s ETF Market Strategy


What to do now?

The stock market rally provides no reason to increase exposure. In the past, indices would at least have a strong session to tempt investors, then chop them up with sustained losses over the next few sessions.

But now the major indices cannot hold on to profits.

If you’re buying on strength, chances are you’re buying on a short-term high. If you go on the weak, you can jump on a sinking ship.

It is better to wait for the major indices to show signs of a sustained market rally. That suggests the S&P 500 will break above its 200-day line, and then all major indexes will clear their December 1 highs. Even with that positive scenario, investors should add exposure cautiously.

Read The Big Picture daily to stay in sync with market direction and leading stocks and sectors.

Please follow Ed Carson on Twitter @IBD_ECarson for stock market updates and more.

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